Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Shell PLC (SHEL, Financial) reported strong operational performance with adjusted earnings of $6.3 billion and $13.5 billion in cash flow from operations.
- The company has made significant progress in its integrated gas business, including extending partnerships and acquiring Pavilion Energy in Singapore.
- Operational performance improvements were noted across various segments, including Prelude and Pearl GTL in Qatar.
- Shell PLC (SHEL) has successfully started up several upstream projects, contributing to cash flow longevity and energy security.
- The company is maintaining capital discipline and has announced an 11th consecutive quarter of $3 billion or more in share buybacks.
Negative Points
- Market conditions have led to the pausing of on-site construction at the biofuels plant in Rotterdam.
- The Nature Energy acquisition has not yet been accretive to earnings due to lower natural gas prices and higher feedstock costs.
- The chemicals portfolio is currently in a breakeven state, indicating challenges in achieving profitability.
- There is a need for continued focus on cost reduction and operational efficiency to maintain competitiveness.
- The company faces potential challenges from the anticipated increase in global LNG capacity, which may impact spot gas prices.
Q & A Highlights
Q: Can you talk about what's been better than you thought, what worked out, where you wanted to be, and areas you think need more focus than originally planned?
A: Wael Sawan, CEO: We're very pleased with the momentum we've built over the past 12 months. We've focused on solidifying the company, improving operational performance, reducing costs, and enhancing our portfolio. The biggest focus remains on culture change to ensure these improvements are sustainable. Prioritization and de-bureaucratization are key areas we're working on.
Q: How do you think about the evolution of the balance sheet and how you use free cash flow?
A: Sinead Gorman, CFO: Our balance sheet is incredibly strong, allowing us to pursue value opportunities and provide resilience. We aim for consistency and predictability in shareholder distributions. We manage debt levels carefully, considering upcoming projects like LNG Canada.
Q: Could you give a sense of CapEx guidance and any specific inorganic bullets expected in the second half of the year?
A: Sinead Gorman, CFO: We are running low on CapEx numbers mid-year, similar to last year. We expect to be within the $22 billion to $24 billion range by year-end, with several payments and project completions pending.
Q: What are your thoughts on the future of biogas and the Nature Energy acquisition?
A: Wael Sawan, CEO: We believe in the future of biogas and biofuels, particularly for decarbonizing sectors like marine and trucking. The Nature Energy acquisition provides a platform for growth, despite current market challenges. We view this as a long-term investment.
Q: Should Shell revisit its liquid production targets given global oil demand growth?
A: Wael Sawan, CEO: We remain committed to our value-over-volume strategy, focusing on high-margin, low-cost production. We aim to keep liquids production flat through 2030, ensuring competitiveness and margin improvement.
Q: What is the impact of the Singapore divestment on chemicals and refining earnings?
A: Sinead Gorman, CFO: The Singapore divestment fits the buyer's portfolio better than ours. It will contribute to our $2 billion to $3 billion OpEx reduction target, with completion expected around year-end or Q1.
Q: How do you view the balance sheet and cash returns given the strong performance?
A: Sinead Gorman, CFO: We maintain a strong balance sheet and healthy cash levels. Our debt levels are attractive, and we manage net debt with a gearing level around 17%. This allows us to be consistent in shareholder distributions.
Q: What are Shell's next moves in Namibia following exploration success?
A: Wael Sawan, CEO: We are evaluating the commercial producibility and mobility of the molecules. We need to ensure the returns meet our expectations before committing capital. We are learning from our own and others' activities in the region.
Q: How do you manage the internal mood and focus on cost savings amid growing cash balances?
A: Wael Sawan, CEO: The mood is positive, but we emphasize the need for a performance culture. Cost savings are an outcome of transforming the company's culture to be more competitive. We focus on prioritization, simplifying standards, and multiskilling to drive efficiency.
Q: What drove the strong results in marketing and how do you view the dividend growth?
A: Sinead Gorman, CFO: Premium volumes and high-grading the portfolio contributed to strong marketing results. We aim for a consistent 4% dividend growth, separate from share buybacks, which are driven by capital allocation for maximum value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
